Keeping the Quality of Services High
Accountants across the world understand the crucial nature of accurate and clear financial information. In the past accountants had trained in the principles of the International Standards on Quality Control (ISQC 1) which was predominantly concerned with compliance to quality standards.
ISQC 1 was recently replaced by the new International Standard on Quality Management 1 (ISQM 1) which provides a comprehensive framework that helps prevent mistakes, reduce the risk of breaking the rules, and avoid potential financial and legal troubles. In line with this, accounting practices should set up a system to identify and manage the risks they may have relating to their services and products. In turn, this should empower accountants to do their jobs well, maintain trust and meet high standards of professionalism and ethics.
How is quality management different from quality control?
Most accountants understand the concept of quality control as being the process where a product or service is checked to see if it conforms to the relevant standards. This approach focuses on compliance to detect and correct errors in a service or product suggesting an enquiry after the engagement has been concluded. As opposed to this, quality management implies a proactive approach, ensuring that quality is built into the processes and systems in a way that prevents mistakes from occurring. It provides a forward-thinking approach starting with the firm's leadership responsibilities, enhancing governance and emphasising a culture of quality from the top down.
Quality management is based on quality objectives and the evaluation of risks specific to an accounting practice. The First Time Implementation Guide issued by IFAC offers detailed guidance on the considerations for small and medium accounting practices.
A simple quality management system (QMS) for small practices
This all sounds good in theory, but how should a small or medium practice go about setting up a QMS?
ISQM 1 applies to all accounting firms, big or small, by making quality standards adjustable to fit each firm's size and needs. It sets out a comprehensive framework that accounting practices can use to document their system. While it sets out comprehensive guidance, smaller practices can substantially ‘scale down’ on the requirements to suit their practices. This means that from a single accountant to a large global company can customize how they manage quality based on what they do and who they serve.
Setting up a Quality Management System
Setting up a QMS based on ISQM 1 in a small accounting firm involves several key steps. Each step addresses different principles of the standard, tailored to the specific needs and scale of a small practice. Below we highlight a straightforward approach.
Step 1: Define Quality Objectives
Identify the main goals of your QMS, i.e. compiling accurate financial reports and ensuring that clients comply with tax laws.
These objectives should apply to the services you offer, focusing on the areas most relevant to your client base. i.e. if you do not offer any assurance services (i.e. audits).
The good news is that the basic quality objectives are identified in the standard and most tools will list them for you. It is critical to cover these as a minimum when identifying risks.
Step 2: Assess Quality Risks
Consider each of the quality objectives to identify potential risks that you may not be able to achieve these objectives. For example, for a smaller firm, this might include risks like data errors or client confidentiality breaches. See the Illustrative Risk Matrix on the IFAC website demonstrating how to consider the risks and relevant controls.
Assess the likelihood and impact of these risks to prioritise how they can be managed. Consider recent client complaints and results of reviews conducted when evaluating risks.
Step 3: Implement Necessary Controls (responses)
Design specific actions or internal controls that were taken to manage the risks. This could include internal reviews of files, securing data management systems with passwords and arranging professional training for staff.
Controls should be practical and achievable given your practice’s resources.
Step 4: Assign Responsibilities
Assign the ultimate and operational responsibilities for the QMS. In a small accounting firm, often with a handful of employees, the roles related to quality management can be consolidated under one or two key individuals. For instance, the managing partner might take on the ultimate responsibility for the entire QMS. This includes overseeing risk assessments, managing resources, and ensuring effective communication and training. Additionally, this managing partner could also handle monitoring and remediation processes. The consolidation of these roles is manageable due to the smaller scale of operations and fewer engagements, making it easier for one person to maintain oversight.
Ensure that assigned staff members are duly qualified and have the capacity (qualifications and experience) to perform the tasks they are assigned.
Step 5: Monitor and Evaluate the System
Regularly check how well the QMS is working. This could involve periodic reviews of client files, feedback sessions with clients, and staff meetings to discuss the system’s effectiveness.
Adjust the system as needed based on feedback and any changes in your firm’s operations or external environment.
Step 6: Document and Compliance
Specific practices, procedures, and objectives of the QMS should be documented in a policy. This policy should be accessible and understood by all staff. Again, the extent of documentation will depend on the size and complexities of the practice.
Risk assessments should be documented in an accessible and clear format.
Policies and processes should be regularly updated to reflect any changes or improvements in the QMS.
Step 7: Communication and Training
All staff members should be adequately informed regarding the QMS and understand their roles and responsibilities clearly.
Staff should be trained on the latest accounting standards, regulatory requirements, and effective practices. Ensuring that staff are members of a professional body such as CIBA is a great way of outsourcing this responsibility.
Conclusion
The implementation of ISQM1 represents a significant step forward in the commitment to quality within the accounting profession. By embracing these standards, accountants can ensure that their practices not only meet but exceed the expectations of their clients and regulators. As QMS becomes integral to operational success, firms that adopt and adapt these principles effectively will lead the way in professionalism and reliability.
Learn the basics of quality management enroll to CIBA’s Quality Management in Practice CPD event.
The webinar covers the following topics:
Introduction to quality management.
The characteristics of a good QMS.
The need for monitoring and updating.
Key elements of effective monitoring.
Practical strategies for updating policies and procedures.
Tools and technologies for streamlined management.
